The long-term bond rate is cointegrated with the actual one-period inflation rate during two sample periods, 1961Q1 to 1979Q3 and 1961Q1 to 1995Q4. This result indicates that in the long run the bond rate and actual inflation move together. The nature of short-run dynamic adjustments between...

In the sample periods studied here, the bond rate and actual inflation move together. However, ways in which they have adjusted to each other in the short run have changed since 1979. In the pre-1979 period, when the bond rate rose above the current inflation rate, actual future inflation...